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This is the second of three articles on the legacy of
the Temer years at Palácio do Planalto for
infrastructure projects in Brazil and what challenges lie ahead
for the Bolsonaro years. The first article focused on state
owned enterprises (SOEs) – especially Petrobras and
Eletrobras. The Temer government initiatives include better
corporate governance and reduction of some of the dominance
those two SOEs had in their markets via sales of assets.
However, there are still open questions as the sale of assets
are targeted with judicial decisions and political manoeuvers.
This article will focus on the changes affecting the government
when designing, approving and financing infrastructure
projects.

From its first days in office, the Temer administration
faced several challenges – among them, economic
recession. One of its most important measures to kickstart
infrastructure projects again was a focus on solving
government-created bottlenecks, which would encourage a better
flow of projects to be developed by private companies. In this
article, we will explore a few of the policy changes
implemented that will likely outlive the presidential term
ending in December 2018. In the next article we will look more
closely at regulated sectors, and how the government is now
closer to a solution to structural problems encountered in the
power and logistics sectors.

The very first government legislative initiative was to
create a structure dedicated to accelerating the pipeline of
infrastructure projects (PPI). The PPI, which reports directly
to the presidential office, is not responsible for designing,
licensing, financing or approving projects. Its goal is to
follow up the development of projects within the various
governmental bodies and ensure that these stick to schedule.
After years of stalemate and delays in infrastructure projects,
the PPI has directly taken part in the procurement/closing of
70 projects that are connected to BRL 142 billion ($36.3
billion approximately) in investments and BRL 28 billion in
signing bonuses.

Additionally, one of the most significant bottlenecks for
projects is approval by the Court of Accounts, primarily when
it comes to questioning engineering designs produced for public
auctions, and not having a deadline for the approval or denial
decision. The Court of Accounts is increasingly stringent when
it comes to approving projects before procurement, and could
take months discussing the premises of financial modelling and
engineering design. To create a more predictable process, the
Court of Accounts approved a fixed term of 180 days from the
first filing of the documents to render a final decision.

On the financing side, during the Temer years, Brazil's
development bank BNDES went from being the de facto
only bank for long-term financing to a bank conscious of its
systemic effects and costs to the federal budget. Different
BNDES administrations followed in recent years and the outcome
of the changes is still open to debate. But, while a conclusion
is still pending, it is clear that the bank is taking a leading
role in fostering capital market and private banks
co-financing, and assisting state and municipal administrations
in structuring privatisations and public-private partnerships.
According to BNDES, its disbursements went from over BRL 150
billion in 2014 and 2015 to BRL 70 billion in 2017.

In order to fill the space left by BNDES, the government has
promoted capital markets as a project financing tool, using
infrastructure debentures (a project bond with tax incentives
for the holders). Issuances of infrastructure debentures
reflect this policy (as well as improvements in the economy as
a whole): BRL 6.3 billion in 2015, BRL 4.5 billion in 2016, BRL
9.1 billion in 2017 and BRL 21.6 billion until October 2018,
according to Brazilian Financial and Capital Markets
Association, Anbima). Although the debentures have increased
their market share significantly, there is still room for
improvement. Around 30% of every debenture issued is bought by
underwriters with institutional investors only buying 30%. The
government is adjusting regulation of investment funds to
foster those specialised in infrastructure debentures, so that
holders (that have significant tax benefits) can reduce their
exposure to specific projects, and to allow for administrators
to manage a portfolio.

Project finance in Brazil is finding new paths for investors
and lenders. A country that was recently stalled in
infrastructure finance has now improved procurement processes
and financing instruments to meet its need of infrastructure
investment of tens of billions of dollars per year.